Honorable William A. Harrison 

Commissioner of Insurance 

State Board of Insurmce 

International Life Building 

Aust~in, Texas 

Opinion No. WW-297 A 

Re: Licensing of Credit Life 

Insurance Agents 

Dear Sir: 

This office has reconsidered its Opinion WW-297 dated November 

8, 1957, which former opinion i s withdrawn and overruled and the following opinion substituted in lieu thereof. 

We quote from your opinion request as follows: 

“Article 3. 53 of the Texas Insurance Code is the 

credit life, health and accident insurance statute pertaining to individual or personal insurance in which the insured 

is a borrower of money. Article 3. 50 is the statute pertaining to group insurance, and Section 1, paragraph (4) 

of the statute authorized group credit insurance to be 

written upon a number of persons who are debtors, and 

the creditor is deemed the policyholder. 

“Article 21. 07 - 1 is the licensing law for legal re - 

serve life insurance company agents. This statute exempts 

from its operation ‘an agent selling credit life, health and 

accident insurance issued exclusively in connection with 

commercial loans. ’ Article 21. 07 is the statute which 

licenses agents for other types of operations than those 

contemplated under Article 21. 07 -1. As credit life insur - 

ante agents are exempt from the provisions of 21. 07-1, 

it has been the practice of the State Board, of Insurance 

to use the provisions of Article 21. 07 to license a credit 

life insurance agent who was selljug credit life insurance 

under t:hc provisions of Article 3. 53. 

“WC respcclfully rcqucst your opinion as to whether 

a person selling group credit insurance under the provisions 
Hon. William A. Harrison, page 2 (WW-297 A) 

of Article 3. 50, Section 1 (4) is exempt from Article 

21. 07-l; and if so, must such a person be licensed 

under the provisions of Article 21. 071” 

Article 3. 50, Section 1 (4), provides for group life insurance in 

the form of a policy issued to a creditor, who shall be deemed a policyholder, to insure debtors of the creditor, subject to the following requirements: 

“(a) The debtors eligible for insurance under 

the policy shall all be members of a group of persons 

numbering not less than fifty (50) at all times, who 

became borrowers, or purchasers of securities, merchandise or other property under agreement to repay 

the sum borrowed or to pay the balance of the price 

of the securities, merchandise or other property, purchased to the extent of their respective indebtedness, 

or the face amount of any loan or loan commitment, 

. . , 

‘l(b) The premium for the policy shall be paid 

by the policyholder, either from the creditor’s funds 

or from charges collected from the insured debtors, 

or both. 

“(c) . . . 

“(d) The insurance shall be payable to the 

policyholder, Such payment shall reduce or extiliguish the unpaid indebtedness of the debtor, to the extent of such payment; . . . I’ 

Articles 21.07 and 21. 07-l of the Texas Insurance Code require 

the licensing of individuals acting as life insurance agents. The question presented is whether or not cruditors who utilize group life insurance under Arti~clc 3. 50 must obtain licenses under either one of these 

two statutes. You have indicated initial concern whether such creditors 

come withi~n the terms of the exemption contained in Article 21. 07-1, 

1 (b) (5) which exempts from the term “life insurance agent”: 

“(5) an agent selling credit life, health and 

accident iusurancc issue d cxcl~usivel~y in connrction 

with commercial, loall, . . ” 
Mon. William A. Harrison, page 3 (WW-~297 A) 

The above quoted’exernpt~ion in Article 21. 07-l does not apply to 

“group insurance” issuc.d under Article 3. 50, Secti,on l(4). Reference 

to “credit life, health a.nd accident insurance” as used in this exemption 

normally refers to the; insu~rancc written uncler Article 3. 53 of the Texas 

Insurance Code and no: 1.0 the insurance writ,ten under Article 3. 50, the 

“groip life insuranc,t” stat.ute. The. definition of credit life insurance 

and credit health and accidc,nt i.nsurance contai,ned in Article 3. 53.limits 

that insurance to insurance solid in connection width loans 

---. 

Article 3. 53, 

1, B, (1). The requirements under Art.iclc 3. 50, Section l(4), heretofore 

quoted in this opinion, encompass a much broader coverage program 

than just lending transactions such as purchase agreements where the 

vendor sells the property partially on credit. 

Secondly, this exemption in Articl,o 21. 07-l will not apply to 

insurance issued und.cr Art;icle 3. 50, Section l(4), for the reason that 

the policyhohling creditor under Articl,e 3. 50 does not “sell” insurance. 

The “creditor” provided for in Article 3. 50 is sold a policy of insurance. 

-- 

There is no sal,c of insurance by the credit,or to his debtor. He merely 

affords hi,s debtors the opportunity of obtaining the protection of the 

group insu.rance pol.icy previou,sly purchased by him. 

Under Article 3. 50 (4), the proceo ds of insurance are payable to 

the creditor and with the exception of t:ht case of a “d,ebtor with seasonal 

income” as therein d(::sc:r;bcd, the ;nsurance cannot: exceed the amount 

of the loan balance. Also, t,he responsi.bi,li~ty for payjng the premium is 

upon !he creditor, :~hough ho may pay the premi.um tither frown his own 

funds or from charges collected from the insured debtor. 

Arti,cle 21. 07-,l, St:c:t:ion 1, Subsection (b), provid.es as follows: 

Sl~bsc~c:!o~~ (a) of Sr;c:t.ion 3 of this same Article provides as 

follows: 
Hon. William A. Harrison, page 4 (WW-.29’/ A) 

agent within this State until he shall have procured a 

license as required by the laws of this St.ate. ” 

This language supports the proposition that the Legislature 

intended by thj,s Article to require a license only of those who solicit, 

negotiate, or procure the issuance of insurance policies, or who act 

as agent for the insurance company in the collection of premiums. 

A “creditor” acting in accordance with Article 3. 50 l(4) does not 

perform these functi~ons. The policy is “sold to him;” he does not 

sell it, nor solicit, negotiate, or procure its sale. 

We do not believe that under the terms of Article 3. 50 (4) (b) 

any premium is “collected” by the creditor from the borrower. Rather, 

this section clearly indicates that the payment of the premium to the 

insurance company is the responsibi1jl.y of the creditor with only permission granted to pass this cost on to the borrower if the borrower 

so contracts. 

We therefore hold that. a “creditor” who purchases a policy of 

group insurance under the terms of Arlicle 3. 50, Section l(4), does not, 

in actin~g pursuant to Article 3. 50-l(4), become subject to the licensing 

provisions of Article 21. 07-l. 

Article 21. 07-.l, first enacted in 1955, in part supplants previous 

Article 21. 07. By the terms of Subsccl:ion (a) of Section 1 of Article 

21. 07-2, it is provided that Article 21. 07 is repealed only to the extent 

that it applies to the agcnt:s of legal reserve life insurance companies. 

Article 21. 07 continues to apply t.o agents of other I.ife insurance con>- 

panics, but dot.s not attempt to definr the term “life insurance agent. ” 

Section 1 of this Article provides that. when, a person desires t.o act as 

an agent: for life i,nsurance compnnjes, he must make application to 

the Insurance Deparl.mr.nt for such a license. Section 5 of the Act 

provides that: 

“Sec. 5. Licc!nsc-! Required as Precedent to 

Transact.ing Cusincss. - -. No person shall be nu,thorizcd to cngagc jn husincss as the agent of any life 

ins..;3ncc rornp;my . . . unt.jl he shall have procured 

a licc.ncc from llrr: ~oarcl of lnsurancc Cornlnissioners 

as herein provided, . . .‘I 
. 

Hon. William A. Harrison, page 5 (WVVr...297 A) 

the Code provides: 

“It shall not be lawful for any person to act 

within this State, as agent or otherwise, in soliciting 

or receiving applications for insurance of any kind 

whatever, or in any manner to aid in the transaction 

of the business of a.ny insurance company incorporated 

in this State, or out of it, without fi~rst procuring a 

certificate of auth0rit.y from the Board. I’ 

Article 21. 02 of the Code is in part as follows: 

“Any person who solicits imurance on behalf 

of any insurance company. . . , or who takes or transmits other than for himsel~f any application for insur- 

-... 

ante or any policy of insurance to or from such company, 

or who advertises or otherwise gives notice that he will 

receive or transmit the same, or who shall receive or 

deliver a policy of insurance of any such company, . . . 

or receive, or collect, or transmit any premium of 

i,nsurance, . . . or do or perform any other act or 

thing in the making or consummating of any contract 

of insu,rance for or with any such insurance company 

other than for himself 

-- ,..-.-----.-..-’ . . . 

whether any of su.ch acts 

shall be done at the instance or~request, or by the employment of such insurance c,ompany, . . . shall be held to 

be the agent of the company for which the act is done, 

or the risk is taken, as far as relates to all the liabili- 

--_ --- .-_ 

ties, dutyies -..-A requirements and penalties set forth in 

this chapter. . . . ‘I --- 

--..-.- 

Once again (wit:11 rafercnce to Article 21. Ol), the creditor in acting pursuant to Article 3. 50 is not a.cting as the agent of the insurance 

company “in sol~icit:ing or rc:cci,ving spplicati~ons for insurance” or aiding in the transacii~on of it,s business. Article 21. 02 excepts from the 

definit.ion of agent those who do t.hr acts enumerated~ for themselves. 

Thus, by rcsconing simi,lar Tao that n~bovo, in comlcction with Article 

21. 07 _, 1) WC 11”1d, Ihat. a “creditor” who purchases a policy of group 

insurance under the terms of Artich: 3. 50, Section l(4), does not in 

act~ing pursuant 1herct.o become subject t.o the licensing provisions of 

Article 21. 07. 
. 

Hon. William A. Harrison, page 6 (WW-297 A) 

scope of his activities, Section 3(b) of Article 21. 07-l would prohibit an 

unlicensed “creditor” from receiving directly or indirectly any commission from the insurance company “for services as a life insurance agent. ” 

We would also point out that the life insurance company may not 

agree, as an inducement to the writing of a policy under Article 3. 50, l(4), 

to pay any “commissions” to t:hc “cred,itor” as that would constitute rebates prohibited by Article 21. 21 of the Texas Insurance Code. An illegal 

rebate is defined by Article 21. 21, 4, (8) (a) as follows: 

II 

. . . knowingly permitting. . . paying or allowing, or giving or offering to pay, allow, or give, directly 

or indirectly, as inducement to such insurance, or 

annuity, any rebates of premiums payable on the contkact, or any special favor or advantage in the dividends 

or other benefits thereon, or any valuabl,e considcrati.on 

or inducement whatever not speci.fied j.n the contract; 

II 

. . . 

Since we have previously concluded l.hat. the creditor does not act 

as the a~gent of the life insurance company, he does nothing that would 

entitle him to a cornmj.ssion and since whatever services he performs 

are for his own benefits as opposed to the insu~rance company, the insurance company cannot justi,fy such payments as compensation for services 

rendered to it. 

It should be noted that &h-paragraph (i,ii) of Paragraph (b) of 

Subsect.ion (8) of Section (4) of Arti.cle 21. 21 exempt.s from the definition 

of rebates the 

“(iii) readjuskment. of the rate of pycmium for a 

group insurance policy based on the loss or expense 

experience thereunder, at the end of the first. or any 

subsequent policy year of insurance thereunder, which 

may be made rekoactjve only for such poli.cy year. ” 

Previous Opinion No. WW -297 is ovcrrulcd and wilhdrawn. 
. 

Hon. William A. Harrison, page 7 (WW-297 A) 

of Article 21. 07-1, 1 (b) (5). Such a creditor is not 

required to obtain a license as a life insurance agent 

either under Articles 21. 07-l or 21. 07 in acting pursuant to Article 3. 50 l(4). A life insurance company 

may not agree to pay any “commissions” to such a 

creditor as an inducement to the writing of such a 

policy of group life insurance. 

Very truly yours, 

WILL WILSON 

Attorney General of Texas 

BY 

K C~ &kc (f(~ \, 

J h@-d&k 

Morgan Nesbitt 

Executive Assistant 

By @& &L, q ql q4$$&$& 

Richard A. Wells 

Assistant 

RAW/pe 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

Houghton Brownlee 

Gordon C. Cass 

Ben M. Harrison 

REVliZWED FOR THE ATTORNEY GENERAL., 

BY: 

Leonard Passrnorc